Right in the Short Run

Thank god for Tyler Cowen, whose NY Times column makes me think hard about my belief in single payer health care (See also Tyler’s summary):

The monitoring, marketing and overhead costs of private insurance are what allow more expensive medical treatments through the door. It is precisely because competing insurance companies spend money evaluating the appropriateness of claims that they are willing to pay for so many heart bypasses, extra tests, private hospital rooms and CT scans.

…

When it comes to these discretionary benefits, European systems are more likely to make people wait for them, more likely to make the service inconvenient or uncomfortable, or simply not make the services available in the first place. All of these features discourage those who don’t really need care, and, of course, some people simply go elsewhere and pay out of their own pockets. Either way, the overhead costs have been shifted onto patients and their families.

But not all overhead costs get shifted. Yes, the rationing function that the insurance company accomplishes by rejecting claims gets moved, at least in part, to the individual. But what about other costs like advertising? Mark Thoma provides a long list of ways in which single payer will save money.

One of the big gains from single-payer which Thoma leaves out (although his list is quite comprehensive!) comes from giving the uninsured more efficient avenues to deal with health problems. Most states require emergency rooms to provide care to anyone who shows up, regardless of their ability to pay. For the uninsured, going to the emergency room with a life threatening health problem frequently ends up replacing a doctor’s visit because of some minor discomfort.

It is not hard to imagine scenarios where seeing a doctor early in the stages of an illness would cost far less to society than calling 911 with an emergency. In these situations, a universal health insurance scheme would save society resources — it would be more efficient! As Paul Krugman noted some time ago:

What would happen if Medicare was expanded to cover everyone? You might think that the nation would spend more on health care, since this would mean covering 46 million Americans who are currently uninsured. But the uninsured already receive some medical care at public expense — for example, treatment in emergency rooms that would have been both cheaper and more effective if provided in doctors’ offices.

(The catch is that a single payer system is sufficient but not necessary to solve this problem. Universal insurance is both necessary and sufficient. Patch-up plans like the one in Massachusetts will do the trick by simply forcing everyone to become insured.)